CGI brings its spend management savvy to Oregon

“What do people want from their government? It all boils down to four simple principles. People want better customer service. People want to know that we are investing public dollars wisely. People want to know that we are working in an efficient manner. And people want to see how public dollars are being spent.”

Ted Kulongoski, Governor,
State of Oregon

Oregon is the 10^th largest state, with 96,003 sq. miles of land. Oregon's rich natural resources fueled the state's economy for a long time. In recent years, technology has assumed the role previously played by forest products, but forests, farms and ranches, retail trade, and tourism are still significant elements of the state's economic profile.

The Challenge
Oregon wanted to generate savings and achieve better value for taxpayers on commonly purchased goods and services by lowering prices and leveraging the state’s purchasing volume. It also sought to assess the specifications of goods and services being bought to ensure the optimal use of state dollars.

CGI was asked to help Oregon on many levels. It would need to begin its mandate by conducting a spend analysis. Next it would present Oregon with strategic sourcing strategies that would lead to savings for the state. CGI was also asked to work with the state’s procurement staff to improve current purchasing practices and to transfer knowledge and train state procurement professionals in procurement best practices. And finally, CGI needed to develop and implement management reports to measure the savings realized.

The Strategy
CGI helped to execute a comprehensive spend management program for Oregon called “Smart Buy.” The program began with a statewide opportunity assessment conducted by CGI involving a detailed spend analysis of state spending using CGI’s PRISM® (Procurement Information SysteM®) solution. The solution examined spending with thousands of vendors in more than one million transactions paid through 17 sources of public funding and recorded in four separate financial management systems. CGI also examined the purchasing processes, procurement policies and codes, contracts for goods and services, and the opportunity to expand the knowledge base of the state’s professionals. The analysis results included a prioritization of categories with savings potential quantified, strategic sourcing strategies for pursuing savings in each category, and a knowledge-transfer program to develop skills in several areas of sourcing.

During the strategic sourcing phase of the project, CGI worked with state procurement professionals to create and capture the cost savings identified during spend analysis through a Leveraged Purchasing Power® project. Expenditure categories addressed in this wave included PC Hardware, PC Peripherals, Long Distance, Cellular Phones & Services, Telecommunications Data, Telecommunications Customer Premise Equipment and Related Services, Office Equipment/Copiers, Express Mail, Vehicle Tires/Maintenance, Office Supplies, Software, and IT Professional Services. The project was later expanded to include Medicaid Management Information Systems for the Department of Human Services, a new, multi-year contract for telecom data services (frame relay and alternate technologies), mainframe and server purchases, postage meters, and a cost control project in telecommunications customer premises equipment and related services.

Throughout the project, CGI worked with the state’s procurement professionals to improve current purchasing practices. This work included the development of alternate negotiating and procurement strategies, including competitive price benchmarking, incumbent negotiations, leveraged purchasing strategies, and multi-round negotiations.

In the knowledge transfer work stream, CGI delivered numerous customized strategic sourcing training modules, including courses in Advanced Procurement Training, Profiling Demand, Market Making, Price Discovery, Negotiations, and Monitoring and Tracking, to approximately 40 state procurement office and agency staff.

In the Compliance and Savings monitoring phase, CGI developed and implemented management reports to measure savings realized from the strategic sourcing effort, vendor performance under the new contracts, and new vendor contract compliance across the agencies. The savings reports are reviewed periodically by an independent, third-party auditor.

Throughout the project, internal and external project communications were essential to the success of the effort. CGI participated in internal project briefings (for agency management and affected employees of many levels) and worked with the client to develop a project Web site and brochure, periodic project communications to various stakeholder groups, and project summary presentations for presentation to the legislature. These communications were targeted to the numerous stakeholder audiences based on the deep and broad experience of working with and communicating to such groups on other state projects and based on the unique needs of the state.

The Technology

• CGI PRISM® software
• CGI Compliance and Savings tool

The Results
As Oregon Governor Kulongoski said, “What do people want from their government? It all boils down to four simple principles. People want better customer service. People want to know that we are investing public dollars wisely. People want to know that we are working in an efficient manner. And people want to see how public dollars are being spent.”

CGI’s project helped to achieve this desired improved efficiency and effectiveness in State procurement, helping to stretch Oregon’s taxpayer dollars further. Strategic sourcing efforts resulted in $10 million in savings in the first budget period for state agencies on a baseline of $84 million, and more than $50 million in savings over the life of the contracts. Beyond these negotiated savings, the project resulted in numerous implementation recommendations, from specific category recommendations that would yield large savings to sourcing approaches and process improvements that would yield the state improved results. One example is the use of competitive benchmarking outside of the solicitation process. This allowed the state to understand the market opportunity before embarking on a cost-savings approach and during the sourcing process to improve pricing considerably after proposals were received. This also enabled the state to conduct fact-based, objective negotiations with incumbent suppliers, thus avoiding unnecessary solicitations and enabling the State to realize savings more quickly.

To sustain the achieved savings, CGI recommended and implemented an approach to measure savings and contract compliance, which would permit Oregon to know with certainty the impact of the project and to better manage implementation of new contracts. As part of this Compliance and Savings Monitoring (CSM) implementation, the CGI SMS team worked side-by-side with state for three months to ensure ongoing successful tracking and monitoring of results. Due to timely, fact-based follow-up by the state sourcing team and the incentives from continued reporting of spend data, compliance rapidly increased, even for categories with initial implementation challenges. Raising compliance can be a large source of savings. Overall, compliance for tracked categories was approximately 97%.

As part of the project, the state measured spending and actual realized savings on the contracts, using an independent, third-party CPA auditor to validate the savings calculations. It judged that the process worked very well and confirmed the program’s efficacy. Spending levels on the new contracts from agencies and cooperative purchasers exceeded expectations. The reports have enabled the state to actively manage vendor compliance with agreed-to contractual pricing as well as implementation progress on the new contracts.

In terms of training, some 40 procurement professionals at the client received in-depth knowledge of strategic sourcing practices. According to feedback received after the training sessions, CGI’s overall rating was a consistent 4+ out of 5.